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10/28/2010

IPhone Coming to Verizon Network?

Over the past several months, I have continued to hear about Apple's agreement with Verizon to release the Iphone on Verizon's CDMA network. According to The Wall Street Journal, the exclusive U.S. arrangement with AT&T is set to end. This would end AT&T's monopoly on the Iphone market that dates back to 2007.

As soon as Verizon is able to make an agreement with Apple to produce the CDMA ready Iphone, we will begin to see AT&T's 43% share of the smartphone market decline. There is a large demand for the Iphone on all wireless networks. Remember, a monopolist maximizes producer surplus by selling less output and at a higher price than what would happen in a perfectly competitive market. Because of the monopoly that Apple has allowed AT&T to hold over the Iphone market, we have not been able to see perfect competition take place. I believe that by allowing other carriers to add the Iphone to their networks and sell the phone, we will see better rates for both the Iphone and the data plan associated with it.

The difficulty for Steve Jobs at Apple is to determine whether or not to renew an agreement with AT&T to be its exclusive carrier for the Iphone...a lucrative deal that has AT&T paying Apple a large some per Iphone, or to open up the Iphone to all carriers and benefit from more sales but at a lower margin.

6 comments:

Many people with disgust for AT&T’s poor customer service and dishonest billing practices have not waited for Verizon to release the iPhone on its network. I actually know more people who have jailbroken their iPhones and run them on T-Mobile’s network, than those who play have succumb to AT&T’s monopoly. This article not only explains that it is now legal to jailbreak an iPhone, but also explains how to do it. Technology in the free market sure has a way of weeding out the inefficient.

In pondering why Apple signed with AT&T in the first place, I came across this article (below) that explains the reason is because AT&T has the largest customer base in America. I did not realize AT&T is the powerhouse that they are. It seems, however, that AT&T is continually getting bombarded with negative feedback, and so I will be surprised if Apple continues their exclusive agreement with them.

I think the best way to interpret this is as a joint venture - that hasn't gone too well. Applie relied on AT&T, and they haven't held up their end of the deal.

I think in the future we'll either see Apple avoid products that require partners (so, more products like iPads and iPods), or that they'll move to vertically integrate the potential partner. The latter doesn't seem like it plays to Apple's core competencies.

Apple and the iPhone make me think of the Betamax and the VCR. When Sony first introduced the Betamax in 1975, it was the first “take home” videotape device which consumers could use to record, tape, and see videos. It was cutting edge technology. However, Sony botched its competitive advantage as they were too exclusive in regards to who could manufacture and sell the product.

As the demand for the Betamax was great, other companies, such as JVC, perused the rights to the technology and when they were unsuccessful in negotiating an agreement with Sony, they created a comparable product, the VHS, and entered the market. Even though the Betamax was superior to the VHS, the VHS eventually won the battle and became the medium of choice for video devices. The VHS triumph over the Betamax can mainly be attributed to its strategy which allowed it to be sold through multiple channels.

Similar to the above story, I believe that Apple’s iPhone and Google’s Android are reliving history. Although one can arguably say that the iPhone is the superior product (like the betamax) it appears that the battle is close to over with Google’s Android winning the prize. It appears that Google’s competitive advantage is Apple’s unwillingness to allow multiple entities to distribute its system. Thus, Google’s comparable product, the Android system, has the ability to capture and satisfy would be iPhone users.

However, per the original post, it now appears that Apple is changing their strategy by allowing other phone companies (Verizon) to sell its iPhone. Although Apple is now making change in strategy, I believe their new direction is “too little too late” and the Android phone will continue to dominate the market.

It is interesting to see how things have changed since this article was posted. I think the comment made by walla walla makes a lot of sense. The biggest competitive advantage that the Android has is access to Google applications. One of the difficult things for Apple, but ironically a potential advantage as well, is that there are less software applications created on the Apple platform. The challenging part of this is obvious-there is simply less with Apple. On the other hand, even though there are less applications, they are generally very high quality and often better than Android applications. With Apple now being available on the Verizon network, this move seems to have hurt AT&T much more than Apple.

So cool that you went back and read this Xavier: this is exactly why there are 7 years of posts that you are free to comment upon.

Now that it's 2011 let's double-down on this argument: we're now seeing the same sort of questions asked about iPads versus tablets based on Google's Android operating system. I wonder how things will look in a year?